As a business owner or manager, one of your most important responsibilities is inventory control. Inventory control means always knowing how much of a product you have and always comparing that to how much of that product you are supposed to have. This article will outline the reasons why inventory control is important and then go into tips and tricks that can help you get your inventory control in line.
Reasons Inventory Is Important
1. You might run out.
Good awareness of your product level will help minimize the possibility of running out of product. You might think it is fine to tell a customer that the product she wants will be in next week and she must return to get it, but that will likely lose the sale. Chances are high that she will go someplace else to buy that product when she wants it, which is now, not next week. Keeping adequate supplies in stock at all times increases your sales, which increases your profit.
2. You won’t waste product.
On the flip side, you don’t want to have too much of a product sitting on your shelves. Not only does that tie up your cash, but since products have expiration dates, you may be forced to sell them at large discounts to move them before those dates.
3. It preserves your finances.
Product inventory is an asset to a business. It is critical to know your product counts so that your assets are portrayed correctly on your balance sheet. Bankers, accountants and lenders all look at this number, so as an owner, you should be able to assure them it is accurate. In addition, if a disaster were to strike and your business suffered damage from a fire or flood, you would not be able to give the insurance companies correct loss numbers without good inventory counts.
Another good reason for tight inventory control is that it allows you to identify slow-moving products and then to assess if you should continue to carry them. If you only sell several of a particular product each quarter, it may not be worth the space to keep it. However, if you are not regularly looking at your product counts, you may not realize that a certain item is not a big seller.
5. You can identify shrinkage.
A final purpose of constantly comparing what you have to what you are supposed to have is that it allows you to quickly discover theft or “shrinkage” of your products. If employees or customers get the sense that nobody is paying attention to product counts, theft is more likely to occur. Sometimes “shrinkage” is benign, but sometimes it means you have an employee or customer who is helping themselves to what belongs to you. An example of benign “shrinkage” would be if an employee pulls a product to use as back bar, but forgets to note that in the inventory log. Another example is if, for a valid reason, a customer is given a product at no charge and this is not documented. In these cases, you should be able to discover that you have less of a product on hand than you are supposed to and, hopefully, after some exploring, find out why.
Knowing exactly how much of each product you have helps you to keep track of exactly how much you sell in a given time, which allows you to make informed decisions regarding ordering. It is a good idea to keep approximately six to eight weeks of inventory on hand. Ordering more frequently than every six to eight weeks means money is likely being wasted on shipping fees and ordering less frequently means there potentially is money tied up in products that aren’t going to sell for several months. In addition, if there is about six weeks of products on the shelves, that minimizes the possibility of a sudden surge in sales leaving the shelves empty and the customers disappointed.
You must be consistent in how you do inventory and in how frequently you do it. Each owner needs to decide what makes sense for them. At my spa, we tend to see the most errors in filler counts (such as Juvéderm, etc.). Therefore, we physically count the number of syringes of each filler we have on a weekly basis. If that number does not equal what the computer tells us we are supposed to have, it is easier for us to review a week’s worth of transactions and find the error than if we are having to go back over a month’s worth. However, we only physically count the rest of our retail products once a month since we usually do not have errors in those numbers. Again, each owner must decide what schedule makes sense for them.
Consistency in methodology is also important. Any staff who unpacks products should know how to put them into whatever inventory system you are using, whether that is a software system or a written spreadsheet. Products should never be put onto the shelves before being accounted for. Products that you have paid for but are still in transit should be accounted for. Also, there have to be protocols in place for when a product is taken off the shelf and used as a tester or in the treatment room. The same holds true if a product is given to a client at no charge. If these protocols aren’t being followed, you will never know if you are missing product because of a valid reason or if it has been stolen from you.
Inventory should be counted when your business is closed. If you are counting while your business is open, the product numbers may be changing while you are counting, leading to inaccurate data. For example, if you have 10 moisturizers, but one sells as you are counting, that will likely cause a wrong number to be put into your system. In addition, if you are counting while open, it is possible you will be interrupted and have to put your counts on hold, furthering the likelihood of errors.
If you discover discrepancies when doing inventory, it is important to research those and correct them, if possible.
At my spa, our system was to write on a work ticket what filler the client had received. However, sometimes the providers made mistakes and wrote the wrong filler down (i.e. Juvéderm Ultra Plus instead of Juvéderm Ultra). The cost to the client is the same for both, so while they were charged the correct amount, the wrong filler was taken out of inventory. After discovering that this was happening by noting that inventory counts were off, we changed our system. Now, the providers put one of the stickers that come with each filler on the work ticket. This makes it much less likely that the front desk will take the wrong one out of inventory because we no longer are depending upon the provider to write the correct name.
Our spa also includes a product with many of our service packages. For example, anyone who purchases a series of IPL treatments receives a brightening product as part of the package. After realizing that our counts of the brightening product were off in inventory, we discovered that providers were giving the client the product (as they should), but nobody was “telling” the computer to take that out of inventory. We were able to change the way we put the package into our software, so that when the client purchased the IPL package, the computer told us we owed them four laser treatments and one product. This allowed the front desk to be reminded that the product needed to be given AND needed to be marked as given, so that it was removed from inventory.
Frequency and Consistency
These are examples of how good inventory protocols will help you discover where your products are going and help correct any mistakes that are being made. Physically counting all of your products can be laborious and boring. Unfortunately, it is way too important not to do. For accounting purposes, any business should do it at the end of each fiscal year. However, it should be done much more frequently and consistently for good business management.